New draft regulations published for tax-free savings

Cape Town - National Treasury published revised draft amendments to the regulations on tax-free savings accounts. The wording in the regulations has been amended, removing any ambiguity in relation to performance fees on these products. 

In a statement issued on Friday, Treasury reiterated that performance fees may neither be charged in tax-free savings accounts nor in the underlying funds in which they are invested. 

Access to free savings accounts 

“As a principle tax-free savings accounts should be available to investors for short-term needs, including emergencies, large expenditures and asset purchases,” Treasury said. Therefore investors should be able to access their savings without any restriction. 

The current rules that offer access to amounts within 32 days for financial products with a fixed term and seven days for those without a fixed term appear to have limited product providers that offer fixed term deposits. 

Individuals are therefore not able to invest in fixed term deposits that offer higher interest rates, as there are fewer such products available. 

To find a solution for this, Treasury proposes a relaxation on these rules. This will allow product providers discretion to allow investors to only access the funds upon the maturity date of the product. However, product providers may still allow investors to access the funds before maturity, as is currently the case with fixed term deposits. 

READ: Tax free savings explained

The current rules that limit the exit penalty on early withdrawals remain in place to protect investors against excessive penalties when they withdraw funds before the maturity date. 

Transfers

Treasury also proposes some amendments to clarify compliance issues and administration of fees regarding tax-free savings accounts. 

A second round of consultations with stakeholders in the financial services industry will take place before the transfer regulations come into effect on 1 March 2017 and there will be a number of months in which product providers can adjust their systems to comply with the new requirements. 

Compliance

Treasury proposes that product providers notify the Financial Services Board (FSB) one calendar month before they launch new products in the market. This will allow the FSB to review the product to make sure it complies with all regulations. 

Product providers, however, won’t have to wait for the FSB’s response before going to the market, but the Board will be allowed to give input on compliance after the product has been rolled out. 

Treasury invites comments on the draft amendments until 14 October 2016.